BYD: Making money in the electric vehicle price war is the real skill.

BYD (002594.SZ/1211.HK) released its Q1 2023 financial report (ending in March 2023) after the Hong Kong stock market closed on the evening of April 27th Beijing time. Here are the highlights:

1. The automotive business drove overall performance growth: BYD's Q1 revenue was RMB 120.2 billion, an increase of 80% YoY. Q1 net profit attributable to shareholders was RMB 4.13 billion, an increase of 413% YoY. The company's performance growth mainly came from the automotive business. Specifically, vehicle sales increased by 89% YoY, and single-vehicle revenue increased by 8% YoY.

2. High gross profit margins have declined: With the company's economies of scale and falling battery costs, BYD's gross profit margin surged to 19% in the second half of last year. However, it has fallen slightly this quarter. This may be related to industry price wars, as single-vehicle revenues fell by nearly RMB 6,000 QoQ.

3. Sales and single-vehicle prices have fallen but remain high: The high sales in the fourth quarter of last year were due to seasonal and pre-policy launch factors. The decline in sales in Q1 is somewhat understandable, but they remain at a high level of 550,000 vehicles. Due to the impact of industry-wide price wars earlier this year, the company's single-vehicle revenue has also fallen slightly, putting pressure on its gross profit margin.

4. BYD Electronics is a highlight: Although the consumer electronics market is still in a slump, BYD Electronics has achieved continuous growth. This is mainly due to an increase in Apple's market share and the growth of new energy businesses. The weak Android assembly business has gradually weakened its impact on BYD Electronics.

The overall view: BYD's performance this quarter is actually quite good. The new energy vehicle market has shifted from "undersupply" to "oversupply," and price cuts and gross margin pressures are inevitable. Reflected in the financial report, the company's single-vehicle revenue and gross profit margin have both fallen slightly this quarter.

Price concessions will put pressure on profits, but the most important thing in the current period is the release of sales, and the improvement of production capacity utilization can also form economies of scale on the cost side, bringing competitive advantages. BYD delivered 550,000 vehicles this quarter, far ahead of other domestic manufacturers.

Judging from the tone of car companies such as Tesla, BYD is still inevitably facing price wars in the new energy vehicle market in the future. Price wars will put pressure on short-term profit growth and market expectations. But after the market is cleared, the overall market structure will become clearer.

Here is a specific analysis of BYD by Changqiao Dolphin:

First, excluding BYD Electronics, the performance of the automotive business is the core:

1. Car sales: The growth rate has slowed, but it is still high. BYD sold 552,000 vehicles in Q1 2023, an increase of 89% YoY. Compared with the doubling of sales last year, this quarter looks relatively weak. It is worth noting that since the company stopped producing traditional fuel vehicles in March last year, all of its sales have been new energy vehicles. As the penetration rate of new energy vehicles increases, the growth rate will inevitably slow down. Although the slowdown is a trend, it will not happen overnight. Compared with the target of 2 million units unfinished last year, it will definitely be surpassed this year.

2. Installed capacity of power battery and energy storage: With the soaring sales volume of cars, the installed capacity of BYD's power battery and energy storage (including self-supply and external supply) in 2023Q1 is 27GWh, a year-on-year increase of 83%. Compared with the nearly 89% sales growth of new energy vehicles in the same period, the growth of energy business is overall lower than that of automotive business.

3. Revenue: After excluding BYD Electronics, in 2023Q1, BYD achieved revenue of RMB 93.8 billion, a year-on-year increase of 104%! The growth rate has fallen slightly, but the automotive business still achieved double-digit growth.

Specifically: The company's automotive sales in the quarter increased by 89% year-on-year, and the single-vehicle income increased by 8% year-on-year, and both volume and price increased compared with the same period last year.

4. Gross profit and gross profit margin: After deducting BYD Electronics, the company achieved a gross profit of RMB 19.4 billion in 2023Q1.** The gross profit margin dropped slightly from 22.8% in the previous quarter to 20.7% this quarter due to the decline in single-vehicle income.

5. Net profit: BYD's net profit margin has fallen from a high level, mainly due to the decline in gross profit margin. After deducting BYD Electronics, the company achieved a net profit of 3.83 billion yuan in 2023Q1, a year-on-year increase of 457%.

Although the company has reduced costs in this quarter, the cost ratio has increased. Overall, it maintains at a reasonable level.

II. BYD Electronics: The Alpha of Business Transformation

Compared with the entire BYD business, a considerable proportion of the independently listed BYD Electronics comes from the parts and assembly business of mobile phones/tablets.

1. BYD Electronics revenue: In 2023Q1, BYD Electronics achieved revenue of 26.4 billion yuan, a year-on-year increase of 26%. Why does BYD Electronics still achieve double-digit growth in the overall sluggish consumer electronics market? This is mainly due to BYD Electronics' increased share in Apple and the push of new energy products.

BYD Electronics, which was originally an assembly business mainly focused on Android, added the "Apple and new energy attributes", and the continuous growth in the quarter mainly came from the alpha brought by the latter.

2. BYD Electronics gross profit margin: In 2023 Q1, BYD Electronics' gross profit margin was 7.7%, and the improvement in gross profit margin mainly came from the increase in Apple.US market share and the drive of new energy business.

3. BYD Electronics net profit: In 2023 Q1, BYD Electronics achieved a net profit of 460 million yuan, a year-on-year increase of 155%, and the company's quarterly gross profit margin was 1.7%. The overall weakness of consumer electronics has put pressure on the net profit margin of the electronics business. Fortunately, the improvement in the company's share of Apple and the growth of new energy business have provided support for the company's profit margin.

III. Overall Performance: Industry Pressure, Still Earning Money

1. Revenue and Net Profit Attributable to Equity Holders: In 2023 Q1, BYD achieved revenue of 120.2 billion yuan, an increase of 80% year-on-year, and the company's growth was mainly attributable to the drive of the automotive business.

The company achieved a net profit of 4.1 billion yuan in the entire quarter, of which the automotive business contributed 3.8 billion yuan. Although the profit has fallen compared to the previous quarter with a large number of deliveries, there is still a decent profit contribution.

2.Gross Profit and Gross Profit Margin: BYD's gross profit in this quarter was 21.5 billion yuan, a year-on-year increase of 159% or more, with a gross profit margin of 17.9%. The automotive business is still the largest contributor to the company's gross profit. However, the gross profit margin of BYD Electronics has improved this quarter, while the gross profit margin of the automotive business has declined, mainly due to a quarterly decrease of nearly 6,000 in single-car revenue.

3. Operating Expense Situation: The company's period expense ratio for this quarter was 11.9%, both on a year-on-year and quarterly basis. Although the company has some control over the absolute value of expenses, it cannot withstand the increase in expense ratio. 1) Sales Expenses: The company's sales expenses for this quarter were 4.6 billion yuan, with a sales expense ratio of 3.9%. The increase in the sales expense ratio was mainly due to the company's increased investment in sales expenses under market price wars.

2) Research and Development Expenses: R&D expenses for this quarter were 6.24 billion yuan, the highest of the three expenses. This is mainly due to the need for the company to maintain sustained R&D investment in batteries, intelligence, and new cars.

3) Management Expenses: The company's management expenses for this quarter were 3.37 billion yuan, with an expense ratio of 2.8%. The increase in business growth led to increased expenditures for employees, and the decline in revenue this quarter caused the management expense ratio to rise.

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Dolphin Jun from Changqiao's related research on BYD

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